China’s Artificially Created Housing Bubble In Canada Set To Burst Warnings Suggest

It’s been no surprise that Canada has long been in a housing bubble. Foreign investors from China have been buying up property in Canadian cities for years, and reselling them to Canadians for way more than the property is worth. China seems to be intentionally creating a housing bubble in Canada. What Chinese investors are doing is buying up property, and immediately reselling the property to the highest bidder even before the closing date of the first sale. This cycle can repeat as much as 3 or 4 times prior to the closing date of the first buyer, artificially driving up the costs of real estate property. There are signs that the artificially created housing bubble is about to burst.

Last month the Office of the Superintendent of Financial Institutions (Canada’s financial watchdog) stated that Canadian banks need to be stress tested against a 30% drop in housing prices, echoing concerns from the Bank of Canada in June. Last week Chinese media has been warning investors in that country to pull out of the Canadian real estate market, and is expecting a housing crash one that could rival or even be worse than the US housing market crash of 2008.

In 2010 the director of CSIS Richard Fadden warned Canadians in an interview with the CBC that the biggest risk to Canadian security wasn’t from terror groups but from foreign powers that are infiltrating Canadian politics and influencing public servants, fueling a growing concern about economic espionage. Little was done to correct the housing bubble by the Conservatives when they were in power. Little has been done by the Liberals either since they have taken control of the House of Commons last year. Vancouver recently passed laws to increase taxes on foreign real estate investors to help curb the growing concern regarding this artificially created bubble, however there are a lot of doubts whether or not it will work.

Why hasn’t anything been done to completely correct this bubble and warn off concerns of economic espionage? Governments of all levels seem to be cashing in on the taxes of these sales, that’s one reason. The other is because any major correction in the housing market could see that bubble burst with fears of major economic instability. This leaves Canada’s economic future purely in the hands of China, in which it seems they are now moving to burst this bubble intentionally by warning off that country’s investors.

Canada shed 31,200 full time jobs last month. While our prime minister is running around the country shirtless, there has been no word on what our federal government is doing to curb the current housing crisis it inherited from the Conservatives. As result of the current series of warnings and years of inaction, we could be in for a very rough ride ahead. Ontario will be hit particularity hard. A large segment of our population, and many businesses here in Ontario can’t even afford to keep the lights on. Gas rates set to rise as well. There also has been absolutely no word from the Ontario government on what they plan on doing to also head this expected downfall in housing prices, and economic instability as a result.

I’ve been catching up on international economics. This spells a train wreck. It goes like this: a country like Canada runs a big trade deficit with a mercantilist country like China for 35 years. Jobs and wealth flow out of the country; slave-labor goods flow in. According to the Twin Deficit hypothesis, trade deficits have accompanying budget deficits. (Makes sense. Have to pay for all the imports.)

Now the kicker: for all the money that flowed out of the country, the accounting counterpart to this economic activity is that an equal amount of money must flow back in, in the form of foreign investment (i.e. debt owed to foreign parties.) This is why Junior is so big on Chinese foreign investment.

In short: these free-market trade deficits are a triple whammy: 1) get killed in job losses; 2) wrack up debt (private and public); 3) get saddled with an equal amount of foreign investment, which is nothing more than more debt. Clearly an unsustainable process. (But oligarchs on both sides of the border make a mountain of growthless free money at everyone else’s expense; our oligarchs get rich from exporting manufacturing, cutting labor costs and raising profits, shareholder value, dividends and corp exec bonuses. Investor protection and free-trade treaties grease the wheels and tie the hands of democratic government. Plus: cut corporate and investor taxes: they earned it!)

This is why Chinese oligarchs are snatching up Canadian real estate. To balance international accounts. (The housing bubble was no accident. The BC Liberals said they gave the real estate industry 10 years to get their act together through self-regulation. Clearly watching a housing bubble grow out of control for 10 years was an act of premeditation with accompanying financial conflicts of interest: for every bubble there exist investment vehicles to bet it will burst: i.e. shorting the hyped-up worthless investment.)

Market fundamentalists conveniently believe in the supply-side tooth fairy: build ANYTHING and they will come. Any kind of foreign investment creates wealth and jobs. This is obvious nonsense. Foreign investment inflows and outflows took a wrecking ball to Latin Tigers and Asian Tigers during the 1990s: nothing more than currency market manipulation bubble scams. The euro-PIGS got hosed on foreign investment in euros during the 2000s Bust Out; that turned to debt in a de facto foreign currency. Spain is the clearest example of a lot of bad foreign investment into nonsense construction for nothing but putting government (somehow) on the hook for bad loans to foreign investors.

Allowing foreigners to snatch up real estate is the absolute worst kind of foreign investment. It’s all rent-seeking. It creates negative wealth. The only sensible foreign investment a country can allow (to avoid economic self-destruction) is investment in the production of value-added goods and services and research and development: i.e. capital controls. (Whether labor-efficient or not.)

Either we return to sensible Keynesian ‘(Green) New Deal’ economics free from obvious robber baron looting; or cook up some popcorn and watch civilization implode. (Will be quite the show: Awesome. Spectacular. Breathtaking!) We have about a decade before civilization unravels into fascist revolutions and world war. Much less time to do something about it. (Perhaps a rant to the Void.)

I agree completely. I’ve been watching international economics since the Nortel crash, and the lack of responses to properly regulate financial markets to discourage abuse. Even after the US 2008 crash, we still have band aid solutions, due to heavy lobbying big corps and banks. The can keeps being kicked down the road. It’s the same thing in our current housing bubble. Even though the clouds are rolling in, there is a reluctance to put forth the needed regulations right from the on set.

Conservative ideology of deregulation and the market will fix itself is the equivalent to purging society by abolishing all criminal laws. Of couse there’s going to be anarchy. For the past decade we had a conservative government in power. One would hope the Liberals will start to fix things. All indications are they have no interest nor is it a priority for them. A lot of people are going to loose a lot of money, jobs and property if they don’t get their act together.

Good!
It’s not fair to buy a house in Banff & only live there 2 weeks of the year! (true story!) Someone could use that house to live in because their job is in Banff!
If you aren’t using something but prevent anyone else from using it; you are what they call “a dog in a manger! “…meaning the dog sleeping on the straw doesn’t eat it but won’t allow animals that dobeat it, can’t.
So annoying, Canadian Government will stop the downfall of Canada.